Signs of continued economic slack and the weakness of inflation are key reasons for the Reserve Bank of India (RBI) to resume its rate-cutting cycle in its upcoming policy review on 2nd June. One other important, but overlooked, factor that the RBI is still focussing on before loosening further is evidence of fiscal consolidation without hampering public investment. We think that the Finance Ministry can point to some success in meeting these conditions over the past few months, which should further strengthen the case for more interest rate cuts.
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